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Baidu Crackdown in China


According to sources familiar with the situation, Baidu Inc. sold $1 billion in bonds in a two-part sustainable sale, marking the first big worldwide debt offering by a Chinese computer corporation since Beijing escalated its crackdown on the private sector.

According to the sources, the Internet search engine, which is an investment-grade issuer, priced its 5.5-year and 10-year notes at 83 basis points and 113 basis points above comparable Treasuries, respectively, above comparable Treasuries.

According to credit traders, the 5.5-year bond's spread narrowed by as much as seven basis points in the secondary market Thursday, while the 10-year note's spread expanded by approximately three basis points under broader market pressure in the longer end of the curve.

The deal is the investment-grade issuer's first dollar bond of the year, with the $1.95 billion in such notes set to be offered in 2020 sporting significantly better charges. Considering the fact that closing yr's fantastic financial and monetary stimulus, Asian debtors have profited from a credit score marketplace upward thrust.

According to Bloomberg-compiled statistics, the spread on a Baidu dollar bond expiring in 2026 has narrowed 22 basis points this year, matching the average tightening for all Asian investment-grade dollar notes.

Threats to Security

The National Development and Reform Commission, China's top economic planning agency, had previously granted the company a $1 billion bond sale limit. Borrowers have the option of using the entire amount or not. Baidu is spending significantly to recast itself as an artificial intelligence firm, with use cases ranging from ride-hailing to smart speakers and the cloud, and plans to use the earnings for general corporate objectives and debt payments.

According to CreditSights analysts including Joel Liauw, fair value for Baidu's outstanding notes is 1.63 percent for the 5.5-year note and 2.42 percent for the 10-year note, with premiums of 85 and 114 basis points, respectively. Clare Guo, a Nomura International Hong Kong Ltd. analyst, said ahead of the price that the 10-year bond offered greater value than the 5.5-year tenor.

While Baidu has so far escaped Beijing's campaign to rein in big tech, the crackdown on for-profit after-school tutoring is expected to limit the spending power of some significant ad clients.

The 5.5-year and 10-year sustainable bonds were priced at 1.625 and 2.375 percent, respectively, by Baidu, which leads internet search in China. According to terms seen by the Financial Times, this is between 0.83 and 1.13 percentage points higher than equal maturity US Treasuries.

The final pricing was substantially lower than expected, according to bankers, with rates on both tranches falling by more than 0.3 percentage points below early guidance. This month, Beijing granted Baidu a quota to issue up to $1 billion in dollar debt.

However, the good response to Baidu's debt offering paves the way for further major issuances by Chinese tech companies whose stock has been battered in recent months, according to the head of fixed income at one European bank.

According to Dealogic, Chinese firms have raised $123 billion in US currency debt this year, compared to $127 billion in the same period in 2020.



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